ATO Interpretative Decision

ATO ID 2004/561

Income Tax

• This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade. The ATO ID is current in relation to the re-enacted or remade provisions.
  Australia's tax treaties and other agreements except for the Taipei Agreement are set out in the Australian Treaty Series. The citation for each is in a note to the applicable defined term in sections 3AAA or 3AAB of the International Tax Agreements Act 1953.

Issue

Is the Australian sourced employment income received by a resident of the United Kingdom (UK) assessable income under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) where they are present in Australia for a period not exceeding 183 days?

Decision

Yes. The Australian sourced employment income received by a resident of the UK is assessable income under subsection 6-5(3) of the ITAA 1997 where they are present in Australia for a period not exceeding 183 days as their employer is an Australian resident.

Facts

The taxpayer is a resident of the UK and a non resident of Australia for taxation purposes.

The taxpayer is present in Australia for a period not exceeding 183 days in the Australian income year.

The taxpayer is employed in Australia and receives salary and wage income from an Australian University.

Reasons for Decision

Subsection 6-5(3) of the ITAA 1997 provides that ordinary income derived by a non resident directly or indirectly from Australian sources, as well as other ordinary income included by a provision on a basis other than having an Australian source, is assessable.

The salary and wages received by the taxpayer are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

In determining liability to tax on Australian sourced income received by a non resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates the Agreements Act with the ITAA 1997 so that the two Acts are read as one.

Schedule 1 of the Agreements Act contains the double tax convention between Australia and the UK, the 2003 United Kingdom Convention (the UK Convention). The UK Convention operates to avoid the double taxation of income received by Australian and UK residents.

Article 14 of the UK Convention outlines the treatment of income from employment. Article 14(1) of the UK Convention provides that salary and wages derived by a resident of the UK shall be taxable only in the UK unless the employment is exercised in Australia. If the employment is exercised in Australia then the income may also be taxed in Australia.

Article 14(2) of the UK Convention provides that the income will be exempt from tax in Australia if:

•

the taxpayer is present in Australia for a period or periods not exceeding in the aggregate 183 days in the Australian year of income, and

•

the remuneration is paid by or on behalf of an employer who is not a resident of Australia, and

•

the remuneration is not deductible in determining the profits of a permanent establishment or a fixed base which the employer has in Australia.

The taxpayer was present in Australia for a period not exceeding 183 days. The taxpayer's salary and wages were paid by an Australian resident employer and the exemption under Article 14(2) of the UK Convention will, therefore, not apply.

Accordingly, the taxpayer will be assessable under subsection 6-5(3) of the ITAA 1997 on the salary and wages received from their Australian employer.

Note: a credit for the Australian tax paid may be allowed against the UK tax payable on this income (Article 22(2) of the UK Convention).

Year of income:  Year ending 30 June 2004 Year ending 30 June 2005

Legislative References:
Income Tax Assessment Act 1997
   Subsection 6-5(3)

Related ATO Interpretative Decisions
ATO ID 2002/591

Keywords
Exempt income
Double tax agreements
Non resident individuals
United Kingdom
Salary & wages income

Siebel/TDMS Reference Number:  4049051

Business Line:  Public Groups and International

Date of publication:  9 July 2004

ISSN: 1445-2782